Real estate joint venture: Nothing Ventured, Nothing Gained.

Cartoon of house exploding that illustrates article by Richard Klass, Esq. about a failed real estate development joint venture agreement in New York.

Two developers were in the business of purchasing New York State real properties for purposes of building, renovation, rehabilitation and/or construction of those properties for sale, conversion into condominiums or retain as rental properties.

The developers found a Manhattan property owned by two people. The four of them decided to enter into a joint venture – the two property owners would transfer the property into a limited liability company (LLC) to be formed and the two developers would take care of constructing three single-family townhouses on the property. They entered into a joint venture agreement laying out the terms of their deal.

Joint venture agreement…

In furtherance of their joint venture, the developers laid out money for expenses, including architect and survey fees and mortgage costs. Unfortunately, the property owners failed to transfer the property into the LLC, despite the terms of their agreement to do so.

The relationship between the four joint venturers broke down. The developers decided to sue the property owners in state court. The developers hired Richard A. Klass, Esq., Your Court Street Lawyer, to file a lawsuit against the owners. The complaint alleged that the property owners committed fraud by promising to transfer the property into the LLC but failed to do so, thereby, breaching the joint venture agreement. They also alleged that a “constructive trust” should be imposed upon the property and a court declaration that the developers were equitable owners of the property. The property owners countered that the joint venture agreement contained a clause that any disputes between them were to be submitted to arbitration and that the developers should be compelled to proceed to arbitration. The developers agreed to arbitrate their claims.

Notice of Pendency

Since the property owners did not transfer the property into the LLC pursuant to the joint venture agreement, the developers needed to ensure that the owners did not sell the property out from under them to a third party. Their fear was that, without any protection, the owners could simply sell the property to someone else and not reimburse them for the moneys they laid out and their share of profits under the joint venture agreement. To protect the developers from this happening, a Notice of Pendency (also known as a Lis Pendens) was filed against the property. A Notice of Pendency is a statutory creation under New York’s Civil Practice Law and Rules Article 65. This filing gives notice to the entire world that there is a dispute which affects the title, use or possession of real property. The filing of this Notice preserves the rights of a party from an owner transferring title to the property to someone else, as whoever buys the property is deemed to have knowledge of the dispute.

Request to Cancel Notice of Pendency

The property owners made a motion before the arbitrator to cancel the Notice of Pendency based upon their claim that it was improperly filed since the developers’ interest in the LLC to be formed was an interest in “personal” property, not real property; therefore, there were no grounds to file the Notice of Pendency in the first instance.

In response, the developers argued that the filing of the Notice of Pendency was both proper and necessary to protect their property interests. The developers cited to the case holding in Nastasi v. Nastasi, 26 AD3d 32 [2 Dept. 2005], as their basis for the arbitrator to reject the property owners’ request to cancel the Notice of Pendency. In Nastasi v. Nastasi, the appellate court considered this issue, stating that “no case has been located addressing the concept of abatement in relation to the mandatory cancellation of a notice of pendency while the action has been stayed pending arbitration.”

Action Was Not “Abated” by Arbitration

Once a Notice of Pendency has been filed against real property, CPLR 6514(a) mandates cancellation of the Notice of Pendency if the action has been “settled, discontinued or abated.” The argument in Nastasi v. Nastasi was that a motion to compel arbitration and, in effect, stay the action amounts to the action being “abated.” In rejecting this argument, the court analyzed the definition of the word “abate” as meaning “to put an end to” or “to nullify.” There is a concept that an action which has abated is dead. However, in this context, the availability of a Notice of Pendency in an action stayed pending arbitration is a perceived “loophole” not intended or foreseen by the drafters of the statute; therefore, it could not be said that the action abated or ended.

After argument by the parties, the arbitrator determined that “the notice of pendency should not be cancelled merely because this matter has been sent to arbitration as the underlying action has not been abated. Finally, Claimants [developers] have sufficiently plead an interest in the subject properties as equitable owners to allow them under CPLR 6501 to sustain the notice of pendency at this time.” Therefore, the Notice of Pendency was to remain filed against the property, preserving the developers’ rights in the property until their dispute is determined through the arbitration process.

Richard A. Klass, Esq.


Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn, New York. He may be reached by phone at (718) COURT●ST or at RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

©2018 Richard A. Klass.
Credits:
Marketing by The Innovation Works, Inc.
Image at top of page: Shutterstock

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Ready, Willing and Able

Blond adult woman, shown in a mirror, putting on lipstick.

I’m ready, willing and able / And honey, now it’s up to you.
So lay your cards on the table / And tell me what you plan to do.
– Doris Day

The owner of a 4-family house was ready to make a quick sale for $1.5 million. The buyer agreed to enter into a contract of sale for the house in “as is” condition in an all-cash deal to close seven days after signing the contract. Right before the closing, however, a dispute arose between the parties regarding the actual closing date. The seller attempted many times to close title, including sending several “time of the essence” notices to set a firm closing date. Each time, the buyer’s attorney responded that it could not close on the date but proposed an alternate closing date.

Alleged Title Issues

More than one month after the closing should have taken place, the buyer finally provided a title report to the seller. In the title report, it was revealed that there were five (albeit small) NYC Housing Preservation & Development (HPD) violations against the house. The buyer claimed that those HPD violations were impediments to closing and ultimately violated the terms of the contract of sale if not resolved.

Based upon the buyer’s course of conduct in delaying the closing date and raising minor title exceptions, the seller decided to declare the buyer in material default under the contract and presented notice that the $152,000 down payment being held in escrow would be forfeited unless the closing took place in 10 days.

Lis Pendens Filed

Threatened with the potential loss of its down payment, the buyer filed a lawsuit against the seller seeking specific performance of the contract, breach of contract and monetary damages. Simultaneously with filing the action, the buyer filed a Notice of Pendency against the property (commonly known as a “lis pendens”). A Notice of Pendency may be filed in any case in which the outcome can affect the title, use or possession of real estate, and serves as notice to the world that a party lays claim to the property. Many times, an aggrieved buyer will file a lis pendens in order to tie up the property in litigation to either force concessions from the seller or protect a down payment from being turned over to the seller when in default under the contract of sale.

Ready, Willing and Able:

Failure to Prove Buyer Was “Ready, Willing and Able” to Close

To defend the lawsuit, the seller retained Richard A. Klass, Esq., Your Court Street Lawyer, who filed a pre-answer motion to dismiss the lawsuit. In the motion, the seller claimed that the complaint failed to state that the buyer substantially performed its contractual obligations and was ready, willing and able to close title.

In determining a motion to dismiss, a court must construe the complaint and accept as true the facts alleged in the complaint and any submissions in opposition to the dismissal motion. 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 [2002]. Further, a court must give the plaintiff the benefit of every possible favorable theory. Leon v. Martinez, 84 NY2d 83 [1994]. Further, a court may consider additional facts contained in affidavits submitted by a plaintiff to remedy any defects in the complaint. Rovello v. Orofino Realty Co., 40 NY2d 633 [2 Dept. 1976].

In an action for specific performance, the elements of the complaint must show that “the plaintiff substantially performed its contractual obligations and was willing and able to perform its remaining obligations, the defendant was able to convey the property, and that there was no adequate remedy at law.” E&D Group, LLC v. Theodore Vialet, 134 AD3d 981 [2 Dept. 2015]. In this case, the judge found that the complaint did not allege all of the elements necessary to establish its right to specific performance. Also, the plaintiff failed to submit any affidavit but only its attorney’s affirmation; and an attorney’s affirmation is of no probative or evidentiary significance (see, Warrington v. Ryder Truck Rental, Inc., 35 AD3d 455 [2 Dept. 2006]).

In deciding to grant the seller’s motion to dismiss the lawsuit, the judge held, “Notably, [Buyer’s] exhibits tend to show just the opposite, to wit that [Buyer] failed to perform on the contract and may even have been in breach of the contract by attempting to assign the contract to another entity.” Accordingly, the judge dismissed the complaint.

Richard A. Klass, Esq.
Your Court Street Lawyer

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“What’s in a Name?” asked Shakespeare. “$300,000” we replied.

Portrait of William Shakespeare by William Page, 1873, illustrating article about notice of pendency by Richard Klass.

The child got injured as a result of a trip and fall accident in a building in Brooklyn. His mother hired a law firm to pursue his personal injury claim. The law firm recovered judgment in favor of the child against the building’s owner; however, it was having trouble collecting on the Judgment because the owner seemingly did not have premises liability coverage on the building. To enforce the Judgment, the law firm retained Richard A. Klass, Your Court Street Lawyer, as special collection counsel.

Typographical Error in Judgment

Once a Judgment is granted in favor of a litigant, the court clerk “dockets” the Judgment and records the exact name of the judgment debtor (CPLR 5018). After docketing, the Judgment becomes a lien against any real property owned by the debtor in that county (CPLR 5203). Unfortunately, in this particular case, the Judgment misspelled the name of the building owner/judgment debtor (The “Iguenia” Limited Partnership instead of “Iugenia” Limited Partnership). [This is not the debtor’s actual name; we have changed it for this article.]

Since the clerk indexes judgment debtors’ names exactly as they appear in judgments, a misspelling can effectively allow a judgment debtor to sell its real property to a good faith buyer without the imposition of the judgment lien. In this case, the misspelled name “Iguenia” would have allowed the building owner to sell its property to an unknowing buyer (bona fide purchaser) without having to satisfy the personal injury judgment.

Enforcement Remedy of Receivership

Given the very real possibility that the building owner could sell the property to avoid payment of the Judgment, there needed to be a mechanism to ensure that no one could claim that it did not have notice of the judgment lien. A motion to “resettle” (amend) the Judgment into the correct name might have alerted the debtor to a quick way to dispose of its assets before the Judgment could be fixed.

The strategy devised, utilizing one of the enforcement of judgment measures of New York’s Civil Practice Law and Rule’s (CPLR) Article 52, was to file a petition for the court to appoint a receiver over the property under CPLR 5228. A receiver may be appointed by a court to “administer, collect, improve, lease, repair, or sell any real or personal property in which the judgment debtor has an interest.”

Filing of the Notice of Pendency

The filing of the new case against the debtor gave the creditor/petitioner the ability to also file a Notice of Pendency (also referred to as a “Lis Pendens”).CPLR Section 6501 states:

A notice of pendency may be filed in any action in a court of the state or of the United States in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property, except in a summary proceeding brought to recover the possession of real property. The pendency of such an action is constructive notice, from the time of filing of the notice only, to a purchaser from, or incumbrancer against, any defendant named in a notice of pendency indexed in a block index against a block in which property affected is situated or any defendant against whose name a notice of pendency is indexed. A person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as a party.

Typically, in post-judgment enforcement measures, it is not necessary to file a Notice of Pendency with the court clerk because the Judgment is already filed as of record (and, thus, acts as notice to the world of its existence). Here, the filing of the Notice of Pendency with the petition for receivership was essential in order to make sure that everyone in the world knew that there was a judgment lien against the real property.

Clerk’s Rejection – and Acceptance

Sometimes, creative lawyering is not appreciated or understood by the court clerk. Upon presenting the Notice of Pendency for filing with the new petition for receivership, the clerk rejected it as an inappropriate document. With the CPLR book in hand (the lawyers’ equivalent of an NFL Rulebook), Richard Klass met with the Chief Clerk to convince him that the filing was allowed based upon the fact that the outcome of the receivership petition would necessarily affect the “possession, use or enjoyment” of the debtor’s real property. It was also urged that the clerk could not reject the filing because he was constrained by CPLR 2102(c) (“A clerk shall not refuse to accept for filing any paper presented for that purpose except where specifically directed to do so by statute or rules promulgated by the chief administrator of the courts, or order of the court.”).

Once the Chief Clerk accepted the filing of the Notice of Pendency, the debtor was served with the petition for receivership. The debtor brought into the picture its former insurance broker, who it alleged failed to procure the appropriate insurance policy to cover the building. The parties settled the matter with the debtor acknowledging both the Judgment and the lien and the creditor allowing the debtor to sue its insurance broker and wait for payment of the Judgment until that case resolved. In the end, the creditor received over $300,000 in satisfaction of his Judgment.

— by Richard A. Klass, Esq.

Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached by phone at (718) COURTST or e-mail at richklass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

© 2015 Richard A. Klass
Credits: Image at top: Portrait of William Shakespeare by William Page, 1873. Marketing by The Innovation Works, Inc.


R. A. Klass
Your Court Street Lawyer

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A Man’s Home is his Castle (and Notice of Pendency, an overview)

One of the most important ownership rights in this country is the ownership of one’s house. The old phrase “A Man’s Home is his Castle,” was born from the basic concept that ownership of real estate is the hallmark of freedom.

Contrast the above concept with the other, important concept: we all live in this world together. In living together, we necessarily engage in conduct that requires us to act and react to events external from our personal dominions.

These two concepts intersect at various times, but one place where they come into direct contact is when the law touches upon a person’s home. This may come about when one sells or buys a house; gets injured on someone’s property; obtains or gives a mortgage on the house; leases part or all of a building; or invests in commercial or residential property.

Various issues may develop into litigation concerning real estate matters, including:

Contracts: Litigation around contracts to buy or sell real estate can arise.

“Pushy neighbors”: Disputes over property lines, construction or zoning.

Auctions: Transactions and litigation surrounding the purchase of residential or commercial property, condominium units, or cooperative apartments at foreclosure auctions.

Fraud: Mortgage fraud, Deed theft, or breaches of confidential relationships.

Specific performance: Forcing the seller to close title even though he doesn’t want to.

Partition and Sale: When co-owners of the real estate no longer agree about ownership or management of the property, they can seek a sort-of “divorce” by bringing a partition-and-sale action to have the court order the property sold and the net proceeds divided.

Notice of Pendency, an overview

When litigation surrounding real estate is involved, there is generally a need or desire to file a “ Notice of Pendency ” (or commonly known as a “Lis Pendens”). This is a notice to any potential purchasers or mortgagees that there is litigation involving the property which may affect its “title, use or enjoyment.” This provides protection that the owner of the real property will not sell, transfer, mortgage, or dispose of it, thus leaving the suing party high and dry, before the litigation is over.

Anyone who decides to buy or give a loan with the property as collateral will think twice, knowing that someone out there is making a claim against the property. This can be a very powerful tool, given that owners of property usually have an inalienable right to sell their property as they choose.

— by Richard A. Klass, Esq.

———–
copyr. 2014 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.


R. A. Klass
Your Court Street Lawyer

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Buyer’s Remedies When Seller Will Not Convey Real Property. And What Is a Bona Fide Purchaser?

Two-storey country estate house in Great Britain with manicured green lawn and flower bed in foreground.

Over the last several years the real estate market has had its share of ups and downs.  It was not so long ago that several offers above the asking price would be placed on a single parcel of property.  Today, although the real estate market is not as “hot” as it once was, sales of real estate are on the climb again, and with that there are always issues that may arise.

As a buyer, what happens when you find the perfect house, on the perfect street and enter into a contract of sale. Then when you try to perform your obligations under the contract, the seller stands in your way.  Then after you file a Lis Pendens (Notice of Pendency) and commence litigation to force the seller to sell you the property (also known as specific performance), you learn there was another buyer who preceded you and also did not close.  What are your rights and remedies?

Although one would generally assume the adage, “first in time equals first in right,” that is not necessarily the case.  First, the question to ask when there are multiple purchasers is whether, as the second purchaser, you are a bona fide purchaser.

A bona fide purchaser is a purchaser who purchases property for value innocent of any circumstance that would bear upon the seller’s right to sell the property.  Therefore, if you are the purchaser of a parcel of property without having any knowledge that another buyer already purchased the land, then you are a bona fide purchaser.  If, however, you are somehow aware of any prior contracts of sale, you are deemed to have knowledge and will no longer be entitled to hold the title of bona fide purchaser.

How does a buyer establish they are a bona fide purchaser?  When a buyer purchases property, he must record his deed to the property at the clerk’s office of the county where the property is located. If a buyer fails to record the deed and a subsequent purchaser purchases the same parcel, the second purchaser is a bona fide purchaser and will have preference over the initial purchaser because the second purchaser did not have knowledge of the earlier conveyance, so long as the second purchaser records their deed prior to the first purchaser.

The principles of a bona fide purchaser are not that different when there is one seller, multiple purchasers each holding a contract of sale.  RPL Section 294(1) provides, “An executory contract for the sale, purchase or exchange of real property, or an instrument canceling such a contract, or an instrument containing a power to convey real property, as the agent or attorney for the owner of the property, acknowledged or proved, and certified, in the manner to entitle a conveyance to be recorded, may be recorded in the office of the recording officer…”

If there has not yet been a closing, RPL Section 294(1) permits a purchaser to record their contract of sale.  By recording the contract of sale, the purchaser is placing everyone on notice of their interest in purchasing the property.  If there are multiple purchasers, the first purchaser to record their contract of sale will have rights superior to any other potential purchaser, regardless of whether a down payment has been paid to the seller.

Once a purchaser has recorded the contract of sale with the clerk’s office in the county in which the property is located, they may then pursue their rights of specific performance under the contract.  Commonly in land sale contracts, there is language that allows a party to demand specific performance of the other party.  Specific performance allows a person to demand the other party to perform under the contract rather than to seek money damages. Avila v. Arsada, 34 A.D.3d 609; citing Varon v. Annino, 170 A.D.2d 445, 446; LaMarche v. Rosenblum, 50 A.D.2d 636, 637.   When a purchaser sues a seller for specific performance, the seller cannot claim as an affirmative defense that the purchaser is not ready, willing and able to close.  Courts have determined that when a seller fails to adhere to their obligations under a contract of sale, their actions are deemed to be an anticipatory breach of the contract which waives the buyer’s obligation to perform under the contract.  Gjonaj v. Sines, 69 A.D.3d 1188.  The purchaser’s lack of performance under the contract (i.e. inability to close which arose from seller’s breach) does not prevent the purchaser from exercising their right to obtain specific performance from the seller.

While this remedy, in theory, appears relatively simple and straightforward, there can be complications.  In order to record a contract of sale, the contract must be executed by both parties before a notary public. Common practice is such that people rarely if ever execute a contract of sale before a notary public.  Without a notarized contract of sale, a purchaser trying to force the seller to sell the property may end up unsuccessful.

Another remedy, which can be instead of specific performance or in addition to specific performance, is damages.  It is well settled that a purchaser, if they can establish the seller has willfully or deliberately failed to perform under the contract of sale, can obtain loss of the bargain damages, which are above and beyond the nominal damages specified in the contract of sale. Janoff v. Sheepshead Towers, Inc., 22 A.D.2d 950; Mokar Props v. Hall, 6 A.D.2d 536.

Therefore, the adage “buyer beware” may hold true in many situations, in certain circumstances, the seller, particularly as it relates to real property, may be forced to sell property under the specific performance clause in the contract of sale.

— by Elisa S. Rosenthal, Esq.,
Associate
Law Office of Richard A. Klass
 

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copyr. 2013 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Art credit:
Welton Grange, Cowgate, Welton, by David Wright.
Copyright David Wright. 25 August 2007. This image was taken from the Geograph project collection. See this photograph’s page on the Geograph website for the photographer’s contact details. The copyright on this image is owned by David Wright and is licensed for reuse under the Creative Commons Attribution-ShareAlike 2.0 license.

When Do Two Feet Matter? When $16,728,000 Rides on It!

Painting by Giovanni Fattori showing a narrow alleyway between slightly distressed brick or white stucco buildings.
In 2006, a developer entered into a contract to purchase a large industrial warehouse in Greenpoint, Brooklyn, in order to convert the property into residential housing. The Contract of Sale provided for a purchase price of $16,728,000.
 
The contract was amended and extended eight times in order to provide for several issues to be resolved. Among those issues, there were tenant buy-out agreements concerning the several remaining commercial tenants. During the entire process, the developer was required to make several types of payments to the seller (separate from the large down payment) towards the operating costs of the property. The developer made substantial payments to the seller, including Surrender Agreements, Tenant Buy-Outs, Operating Expenses, and Security Costs. The property finally became completely vacant, and a closing was to be scheduled in 2007.

Title Defects Raised – Especially Chimney Protrusion

As is common in real estate contracts, there was a clause that all title “defects” were to be cured before closing. A title defect is generally defined as an issue relating to ownership or possession of the property, the legal description of the property to be sold or liens affecting the property – or, more to the point, a title defect is one that a reputable title company believes would render title unmarketable. In this case, the survey revealed that a chimney from an adjoining property was protruding two feet into the property to be sold.

The title defect was raised to the seller’s attorney by the developer. In response, the seller’s attorney claimed that the title defect was insignificant and was being raised as a delay tactic and was without merit. To that end, the seller declared a certain date as the “time of the essence” date for the closing. If the developer did not close on that date, then the down payment and all of the operating costs would be deemed forfeited to the seller. Needless to say, that date came and passed, and the seller declared the developer in breach of the contract, entitling the seller to retain the moneys.

Your Court Street Lawyer, Richard A. Klass, was then retained by the developer to ensure that the down payment moneys would not be lost and title would transfer to the buyer under the Contract of Sale.

Quick Action Was Needed

The first step was to file, along with the Summons and Complaint, a Notice of Pendency (also known as a Lis Pendens) against the Block and Lot of the property. This is a statutory creation under New York’s Civil Practice Law and Rules Article 65. This document gives notice to the entire world that there is a dispute which affects the title, use or possession of real property. The filing of this Notice preserves the rights of the buyer from a seller transferring title to the property in contract, as whoever buys the property is deemed to have knowledge of the dispute.

Simultaneously, the Complaint against the seller was filed with the County Clerk’s Office, which contained several allegations against the seller, including that:

(a) the developer fully complied with the Contract of Sale and was entitled to “specific performance” because real estate is considered a “unique” asset that cannot be replicated (the law recognizes that each piece of real estate is distinct);

(b) the electronic communication from the seller’s attorney to the buyer’s attorney concerning the “time of the essence” closing date did not comply with the “notice” provision of the Contract of Sale (it is always important to check the notice provision of any contract to see how notices to the other side are to be sent, e.g. certified mail, overnight delivery, etc.);

(c) the seller failed to actually “tender” the Deed to the property by coming to the place of closing, as required by the contract (the non-breaching party to a real estate contract must show that it showed up at the place and time indicated in the contract to deliver the Deed, even if the other side does not come; thus, recognizing that the breaching party could potentially show up at the last minute to actually close the transaction); and

(d) the title defects rendered title to the property unmarketable and uninsurable; thus, the developer was entitled to the return of all of its down payment and operating costs.

In New York, it is well settled that in order to place a contract vendor (seller) in default for a claimed failure to provide clear title, the purchaser must first tender performance and demand good title. See, Capozzola v. Oxman, 216 AD2d 509. Following that line, a tender of performance by the purchaser is excused only if the title defect is not curable. See, Cohen v. Kranz, 12 NY2d 242. The law also recognizes that a purchaser may opt to waive a title defect concerning the property in order to close title.

The end result of this case was that, despite the claim of the seller that the developer breached the contract and it was entitled to retain all of the moneys paid, the seller agreed to extend the date of closing for an additional month to facilitate the closing of title to the developer.

— by Richard A. Klass, Esq.

 

©2008 Richard A. Klass. Art credits: page one, Dorfstraße by Giovanni Fattori, 1903-1904.

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copyr. 2011 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Notice to Admit: The Power of a Piece of Paper

Painting by Giovanni Fattori of a cream-colored house on brown earth with blue sky.

In the Civil Practice Law and Rules (CPLR) – the “Game Book” of civil practice in New York State courts, there is a little-used device called the “Notice to Admit.” While not as often utilized by attorneys as it ought to be, it can pack a powerful punch to the other side in litigation.

As most of us know, the old days of Perry Mason pulling out a trick at trial have greatly diminished due to the introduction into the legal process of a phase in the litigation known as “discovery.” During the discovery phase, each adversary is permitted to inspect and “discover” relevant documents and information pertaining to the lawsuit, through the use of various discovery techniques. Those discovery techniques may include, among other things, inspecting the books and records of a business, asking questions known as “interrogatories,” performing a physical examination, viewing photographs or videos made of the scene of an incident, and inspecting the geographic location of an area which is the subject of the litigation. Among those discovery techniques, there is the Notice to Admit.

CPLR Section 3123 provides that: “a party may serve upon any other party a written request for admission by the latter of the genuineness of any papers or documents, or the correctness or fairness of representation of any photographs, described in and served with the request, or of the truth of any matters of fact set forth in the request, as to which the party requesting the admission reasonably believes there can be no substantial dispute at the trial and which are within the knowledge of such other party or can be ascertained by him upon reasonable inquiry.” It is further provided that, if the latter party fails to respond, the effect is that the matter shall be deemed “admitted.”

In Rodriguez v. Moreno, it was alleged that, in 1994, the owner of a 2-family house in Brooklyn had to leave this country in a hurry and needed cash. He made an agreement with his tenant that, in exchange for $30,000 cash and the continued payment of the mortgage on the house, the tenant could effectively purchase the house from him. To memorialize their understanding, the owner and his tenant went to the owner’s attorney to sign documents.

The owner’s attorney drafted the documents necessary to transfer title to the house, including a Deed. The owner signed the documents, and the attorney held onto the originals. The agreement was, once the tenant paid off the last of the mortgage payments on the house, the Deed would be released to him from the attorney’s escrow. This arrangement continued for 13 years.

In 2007, the tenant discovered that the owner, who still held title to the house, was trying to sell it to someone else. The only proof of the agreement he had was a photocopy of the front side of the Deed that the owner signed 13 years earlier. Unfortunately, the owner’s attorney had been disbarred years earlier and was nowhere to be found; also gone were the original documents.

Quick Action Was Needed

Armed with only a skimpy photocopy of the first page of the Deed, which had the signature of the owner, the tenant hired Richard A. Klass, Esq., to bring an action under New York’s Real Property Actions and Proceedings Law (RPAPL) to enforce his rights to the house. Since the owner was actively trying to sell the house, and had signed a contract to sell the house to someone else, quick action to stop the sale was needed. With the filing of the Summons and Complaint, a Notice of Pendency (also known as a “lis pendens”) was filed against the house, which operates as notice to outsiders that someone is laying claim to ownership of the house.

The owner denied the agreement, since there was no proof of the agreement between himself and the tenant. He also claimed that the mortgage payments made by the tenant were intended as rent.

Proving the Copy To Be a Duplicate of the Original

The next, important step was to nail down through the discovery phase the proof of the agreement. In general, contracts relating to the sale of real estate require written proof under a legal doctrine known as the Statute of Frauds. Since here, there was no writing other than the photocopy of the Deed, the lawsuit appeared to be futile.

The admissions requested were as follows:

  1. That the attached Deed was signed by the defendant on September 1, 1994.
  2. That the attached Deed was prepared by the defendant’s attorney, or on his behalf by a member of his staff or office.
  3. That the defendant’s attorney prepared the attached Deed at the request of, or on behalf of the defendant.
  4. That the original of the attached Deed was taken into escrow by the defendant’s attorney at or about the time of execution thereof.

Despite being served with this Notice to Admit, the defendant failed to respond to it within the 20-day time frame in which to respond. By virtue of his not timely responding, the above allegations were deemed “admitted.”

Since it was now admitted that the owner signed the Deed in favor of the tenant, and the Deed was to be held in escrow by his attorney, the terms of the agreement were arguably established in a manner allowed by the Statute of Frauds. Coupled with the fact that the tenant made all of the mortgage payments for 13 years, the owner elected to settle the case instead of proceeding to trial.

— Richard A. Klass, Esq.
 

©2008 Richard A. Klass. Art credits: page one, Der Schindanger in Livorno by Giovanni Fattori, 1865-1867.

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copyr. 2011 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Bringing an Action for Specific Performance of a Real Estate Contract of Sale

Typically, the sale of real estate involves the signing of a contract of sale between the owner of the real estate and the prospective buyer for a certain dollar amount. Each side is eager to close the transaction — the seller wants the money from the closing to purchase another property and the buyer wants to move into the house.

Sometimes, the seller/owner of the real estate attempts to delay or cancel the contract of sale for various reasons, including that another party has come along offering more money to purchase the property than the contract price. The buyer is put into a position of bringing an action to enforce his/her rights under the contract of sale to purchase the property.

The right of the prospective buyer to bring an action for “specific performance” is an important one, which is based upon an old, “common law” theory that real estate is considered a “unique asset,” for which a money judgment against the seller for breach of contract cannot recompense. The courts recognize that a certain piece of real estate cannot be replicated or replaced with another or with money.

The action to force the sale of real estate based upon a breach of contract starts with the filing of a Complaint with the Supreme Court in the county in which the property is located. At or about the same time, the buyer will file a “Notice of Pendency” with the County Clerk. The ” Notice of Pendency ” or, as commonly known as the “Lis Pendens,” is a document which serves as notice to the entire world that the buyer is laying an equitable claim to the ownership of the property and that an action is pending to determine the buyer’s potential ownership rights therein. Any person who later contracts to purchase the property is effectively “on notice” of the buyer’s claim and is taking substantial risk in proceeding in any transaction with the seller/owner of the real estate.

After the action is filed, the seller will have an opportunity to answer the Complaint. Then, typically, one of the parties will move for “summary judgment,” asking the judge to decide whether there was a breach of the contract of sale and whether the buyer is indeed entitled to the specific performance of the contract of sale. If the judge decides that the buyer is entitled to purchase the property, then the judge will issue an Order directing the seller/owner to proceed to closing and tender a Deed to the buyer.

It is important for the prospective buyer to move quickly to file the Notice of Pendency when it appears that a breach of the contract of sale has or will occur, in order to ensure that there is constructive notice of the action for specific performance; otherwise, the buyer, albeit entitled to money damages, will no longer have the right to the property.

— by Richard A. Klass, Esq.

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copyr. 2004 and 2010 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

License Information

Bringing an Action for Specific Performance of a Real Estate Contract of Sale by Richard A. Klass, Esq. is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. For permissions beyond the scope of this license, please contact Mr. Klass (email: RichKlass@CourtStreetLaw.com). Insert the words “reprint permission request” in the subject line of the email.

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Article Title:
Bringing an Action for Specific Performance of a Real Estate Contract of Sale

Article URL:
http://courtstreetlaw.com/newsletters/LawCURRENTSSpring2004.html

Author Name:
Richard A. Klass, Esq.

Contact Email Address:
RichKlass@CourtStreetLaw.com

Author’s Firm’s Website:
www.CourtStreetLaw.com

Word Count:
481 words

[This resource box must be included in any publications.]

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Resource Box

About the Author:
Richard A. Klass, Esq. maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached by phone at (718) COURT-ST [(718) 268-7878)] or RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

Read the original article in context at:
http://courtstreetlaw.com/newsletters/LawCURRENTSSpring2004.html

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